Mr. Wotruba, what data is being collected for a space demand forecast with “e-Impact“?
Markus Wotruba: When we analyze a location with ”e-Impact“, we examine the available sales areas directly on-site including currently vacant retail properties. Next, we take a look at the city the test property is located in. Especially important for future retail space demand is the population growth rate. In regions in which the population is still growing today, the losses in revenues in brick-and-mortar retail caused by eCommerce can often be absorbed by the growing number of potential customers. In addition, we determine the retail centrality index, meaning how attractive retail is in a city and its surrounding catchment area, and the population density. The denser the population of a city or region, the more brick-and-mortar businesses can utilize their physical proximity to the customer.
What characteristics are important for analyzing a concrete property?
Wotruba: If we look at a specific shopping center, for example, our assessment includes- among others- existing parking, transport infrastructure development, the potential for synergies with the existing industry mix and the general footfall. In addition, we also measure various factors to assess the quality of the object, such as the vertical infrastructure for instance – meaning how many escalators are available – and space layouts. All of these factors then add up to the ”e-Impact-Factor“ which defines the starting point. We compare it with different forecasts on retail industry development as well as the development of the online retail business market share in specific segments and are thus able to determine the future space demands for a particular site.
What is the maximum period covered by this forecast?
Wotruba: We have determined the forecast for a ten-year period. Since lease agreements for retail spaces often run for ten or 15 years, this also covers the time when the retailer has to decide whether and how he wants to continue using the currently leased space.
What is the advantage compared to other forecasting methods?
Wotruba: Of course, there are also several other methods to determine the future retail space demands. Most of them, however, disregard the location factors and completely rely on analyzing the estimated market shares in their forecasts. Unlike ”e-Impact“ which enables us to not only make blanket statements about various industry segments but to specifically determine the space demand for individual locations.
Let’s take a closer look at a couple of typical sites. What statements can you make in regards to the future demand for sales area for the classic downtown retail?
Wotruba: The development in downtown retail space demand varies drastically depending on the region. Smaller cities in regions with a dwindling population have a harder time, of course. Yet this is not due to the online retail competition per se but rather because of the loss of purchasing power and declining number of customers. Many retailers in these regions need to give up their businesses because they simply are no longer able to find a successor. That’s why the future demand for sales area in these regions will continue to decrease. However, these effects are naturally not quite as dramatic for small towns in affluent regions where the population also continues to grow.
Wotruba: Today, many customers are more drawn to the cities since they are no longer willing to drive long distances to go shopping. This is also why most new centers are opened within cities. Having said that, not all of the centers that are located out of town are affected the same way. The very large centers with their extensive product selection still attract many customers. Germany is currently experiencing a reurbanization: young and slightly older people in particular increasingly move back into the cities and metropolitan areas. Of course, this translates into a structural disadvantage for sites “out in the country“. The effects of eCommerce are added to this.
How does eCommerce impact retail in train stations and airports?
Wotruba: This retail segment will continue to grow in the future and the reason for this is simple: customers primarily don’t stop by here to shop but because they happen to pass the store on their way anyway. Mobility in society continues to increase – the best prerequisites for retailers at these locations. This yields several interesting approaches for new concepts. Switzerland, for example, is currently running a pilot project where customers can order their daily groceries online from their office and then pick them up from a refrigerated lockbox at the train station on their way home. There is still a big potential for growth in this area.
What role do former pure online players play in terms of space demand in the city who now open up their own stores within the scope of a multichannel strategy?
Wotruba: Online retailers that now also enter into the brick-and-mortar business are no longer going to invest in an extensive network of branches and prefer to look for their sites in the big cities. We anticipate that these kinds of retailers will open between 80 and 100 stores, depending on their own concept of course and the targeted audience. Needless to say, even with this scale, they continue to compensate for potential vacancies.